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Negative Welfare Effects from Enhanced International M&As in the Post-BREXIT-Referendum UK

Author

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  • Paul J.J. Welfens

    (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))

Abstract

Summary: The disintegration of a regional integration group raises many questions, including some which relate to welfare aspects. As regards the UK's leaving of the EU (BREXIT), many studies have considered the effect on real gross domestic product (GDP), but thus far no papers have studied the effects on real gross national product and the maximum long-term per capita consumption. As regards these important questions one may consider an enhanced neoclassical growth model with foreign direct investment that allows to capture the main effect from higher post-BREXIT mergers & acquisitions; namely that an increasing number of foreign investors will take over more British banks and firms. The theoretical link picks up the basic insights of the FROOT/STEIN model (QJE, 1991) which says that a real depreciation of the currency brings about higher international mergers and acquisitions in the country with the depreciation. Thus the UK should anticipate a higher share of foreign capital ownership and effectively a worsening of the terms of capital in the future. The model presented shows that the golden age per capita consumption in the UK is reduced by BREXIT. This is an additional negative effect beyond the anticipated 10 percent GDP loss emphasized in the Treasury Study (2016) on the long-term effects of British EU membership.

Suggested Citation

  • Paul J.J. Welfens, 2017. "Negative Welfare Effects from Enhanced International M&As in the Post-BREXIT-Referendum UK," EIIW Discussion paper disbei232, Universitätsbibliothek Wuppertal, University Library.
    • Handle: RePEc:bwu:eiiwdp:disbei232
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    References listed on IDEAS

    as
    1. Paul J.J. Welfens, 2011. "Innovations in Macroeconomics," Springer Books, Springer, number 978-3-642-11909-5, June.
    2. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    3. Andre Jungmittag, 2004. "Innovations, technological specialisation and economic growth in the EU," International Economics and Economic Policy, Springer, vol. 1(2), pages 247-273, January.
    4. Kenneth A. Froot & Jeremy C. Stein, 1991. "Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1191-1217.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    : Growth; Brexit; M&A; Mergers; Acquisitions; Foreign Direct Investment; Welfare Effects;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • F5 - International Economics - - International Relations, National Security, and International Political Economy

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